DEA Policy Expands the Number of Marijuana Cultivators for Research

Last week we summarized several new Drug Enforcement Administration (“DEA”) actions related to marijuana. We now take a more in depth review of one of those actions related to DEA registration to cultivate marijuana for research.

For almost 50 years the DEA has granted only one DEA manufacturer registration for marijuana and thus restricted all marijuana production for research to one entity, the University of Mississippi, under contract with the National Institute on Drug Abuse (“NIDA”). DEA’s longstanding policy was based on belief that “having fewer registrants of a given controlled substances [sic] tends to decrease the likelihood of diversion.” Applications to Become Registered Under the Controlled Substances Act To Manufacture Marijuana To Supply Researchers in the United States, 81 Fed. Reg. 53,846, 53,847 (Aug. 12, 2016) [hereinafter Applications to Become Registered]. To our knowledge DEA has never provided any data to support this position. In addition, the government considered that controlled arrangement as the best way to comply with U.S. obligations under the Single Convention on Narcotic Drugs, 1961 (“Single Convention”). Id. at 53,846, 53,846-47. Then last week the DEA, concurrent with affirming the status of marijuana as a federally-controlled schedule I substance and reporting the U.S. Department of Agriculture’s statement of principles on industrial hemp under the Agricultural Act of 2014, abrogated its long-held policy limiting marijuana cultivation for research to a single grower.

DEA explained that the prior arrangement worked for so long because the single grower could meet the limited U.S. demand for research-grade marijuana. Id. at 53,846. DEA asserted that with the Food and Drug Administration (“FDA”) and NIDA, it “fully supports expanding research into the potential medical utility of marijuana and its chemical constituents.” Id. DEA stated that it recognized the recent increased interest in the research of certain cannabinoids including cannabidiol, and concluded, again based upon discussions with NIDA and FDA, “that the best way to satisfy the current researcher demand is to increase the number of federally-authorized marijuana growers.” Id. While the prior system was geared towards federally-funded and academic research, not commercial product development, the new approach will also foster private sector commercial endeavors for product development independent of NIDA. Id. While the policy change is to be applauded, the cynical among us might surmise that DEA loosened its marijuana growth policy to blunt criticism of its recent decision to deny the petitions to reschedule marijuana.

Authority to Cultivate Marijuana Under the CSA

The federal Controlled Substances Act (“CSA”) requires all controlled substance manufacturers and distributors to apply for and obtain a DEA registration authorizing those activities, but the registrations must be consistent with the public interest and with U.S. obligations under the Single Convention. 21 U.S.C. §823(a)(1); Id. at 53,847. DEA cautions that while it intends to increase the number of registered marijuana cultivators for supplying researchers (assuming it receives qualified applicants), it must register only the number of bulk manufacturers necessary to “produce an adequate and uninterrupted supply of these substances under adequately competitive conditions for legitimate medical, scientific, research, and industrial purposes.” Applications to Become Registered at 53,847. Thus, DEA will evaluate every application submitted to determine whether each registration is necessary to provide an adequate and uninterrupted supply of marijuana, its extracts and derivatives to U.S. researchers. Id. Again, it will be interesting to see how DEA conducts this evaluation given the precedent established in its decisions related to importers of narcotic raw materials.

The CSA establishes six criteria that DEA must consider in evaluating as to whether an application for a manufacturer registration for schedule I substances is consistent with the public interest. 21 U.S.C. § 823(a). DEA indicated that it intends to place specific emphasis on factor 3, that is, whether the applicant has previous experience handling controlled substances in a lawful manner and whether the applicant has engaged in illegal activity involving controlled substances. In this context, DEA stated that illegal activity incudes any activity in violation of the CSA (regardless of whether such activity is permissible under State law) as well as activity in violation of State or local law.” Id. DEA observes, though, that while “past illegal conduct” does not automatically disqualify an applicant, “it may weigh heavily against granting the registration.” Applications to Become Registered at 53,847. This is an interesting position to say the least given that the statutory criteria also requires DEA to consider whether an applicant has complied with “State and local laws.” 21 U.S.C. § 823(a)(2). So in this case DEA appears to be stating that they will ignore this criteria in favor of compliance with federal law.

DEA appears to be directing these statements at potential applicants who are currently providing state authorized marijuana-related services including cultivation, distribution and testing. Such activities without a DEA registration violate the CSA. So these entities may be on the outside looking in as DEA reviews applications for registrations for marijuana cultivation and other activities. This position seems inconsistent with the U.S. Department of Justice (“DOJ”) policy as stated in the “Cole Memo” that it would not preempt state law in states that legalized marijuana for medical or recreational use, and the DOJ and DEA were unlikely to take action against a marijuana-related business operating in compliance with state law as long as the activity did not implicate one of the enforcement priorities. Memorandum for all United States Attorneys from James M. Cole, Deputy Attorney General, Guidance Regarding Marijuana Enforcement, Aug. 29, 2013. However, it now appears that marijuana-related activities authorized under state law but which violated the CSA may constitute grounds for DEA to deny an applicant’s registration to manufacture marijuana for research. So the question is whether DEA in registering a limited number of marijuana manufacturers, given the choice between registering applicants who conducted state-authorized marijuana activities and those that have not, all else being equal, will choose to register the latter over the former.

It will be interesting to see if Congress reacts to DEA’s position given that Congress has recently been active in passing legislation to limit DEA’s authority to take adverse action against marijuana-related entities operating within the scope of state law.

Requirements Under the Single Convention

As discussed above, DEA must also ensure that any registration to cultivate marijuana is also consistent with U.S. obligations under the Single Convention. Articles 23 and 28 of the Single Convention require signatory countries that allow the cultivation of cannabis for lawful uses such as manufacturing for research to:

Designate the areas and plots of land where it will permit cannabis cultivation;

License cultivators;

Specify through licensing the extent of the land on which cultivation is permitted;

“Purchase and take physical possession of all cannabis crops from all cultivators as soon as possible, but not later than four months after the end of the harvest;” and

Have the “exclusive right of importing, exporting, wholesale trading and maintaining stocks of cannabis.” Applications to Become Registered, at 53,847.

DEA’s registration system carries out the functions of article 23, paragraph 2, a-c above, while NIDA carries out functions related purchasing marijuana and maintaining a wholesale distribution monopoly (d and e above). Id. At first blush it would seem from the Single Convention requirements that NIDA, DEA or another government agency must purchase, take possession, and control wholesale distributing, importing, exporting and maintaining marijuana stocks. This would not be much different from the current system except there are more growers. DEA stated that that it would be consistent with the purposes of the Single Convention for DEA to register marijuana growers outside of the single grower NIDA system to supply researchers, if the growers agree to distribute marijuana only with prior, written approval from DEA. Id. at 53,847-48 This is consistent with other CSA requirements such as import and export permits for schedule I and II substances and all narcotic substances. Of course DEA will have to implement a system to review and issue approvals in a timely manner. DEA will authorize registered marijuana growers to operate independent of NIDA if they execute a written memorandum of agreement with the agency to distribute marijuana with prior, written approval from DEA only to DEA-registered researchers who have HHS-approved protocols. Id. As with all schedule I manufacturers, marijuana cultivators will be subject to all CSA schedule I requirements including quota, inventory, recordkeeping and reporting, order form and security requirements.

It remains to be seen how many applications DEA will receive to cultivate marijuana for research and, of more interest, how many registrations DEA will actually issue. While, DEA asserted that its prior policy was based on the precept that fewer registrants meant less likelihood of diversion, the agency provided no data to support this position. In an interesting juxtaposition, this issue was widely argued and debated in a line of cases related to the import of narcotic raw materials. See, e.g., Johnson Matthey, Inc.: Conditional Grant of Registration to Import Schedules II Substances, 67 Fed. Reg. 39,041, 39,043-44 (June 6, 2002) (finding that “DEA is required to register an applicant . . . if the Administration determines that registering another manufacturer will not increase the difficulty of maintaining effective controls against diversion.” So it will be interesting to see how DEA applies this standard in the context of registering marijuana manufacturers.

Registrants can apply for a DEA registration to manufacture marijuana for research by filling out a DEA Form 225, available on the DEA Office of Diversion Control website. Applications to Become Registered at 53,848.